Sometime next year, the graffiti you see on railway cars passing through our area may well be in Spanish.
Pending regulatory approval, Canadian Pacific Railway (CP) is set to become the first rail freight network to link Canada, the U.S. and Mexico.
Early this week CP cut a hefty US$25-billion deal to buy a U.S. railway that has lines into Mexico, called Kansas City Southern (KCS).
CNBC market analyst Jim Cramer notes there are no overlapping lines involved in this deal, so approval is likely.
In some circles, the deal is being hailed as one for the ages.
Besides being a monumental purchase, it has huge ramifications for agricultural trade, and beyond.
First, it does exactly what the recently rewritten Canada-U.S.-Mexico trade deal is supposed to do – that is, open up trade fairly and evenly among the three signatories, with the potential to spread benefits around in new ways.
It’s as timely as can be. With air travel being severely limited during the pandemic, rail transportation has risen like a phoenix. Forecasters say the movement of anything by air will take ages to recover, paving the way for rail to step in and fill the void it once occupied… provided, of course, it has the capacity to do so.
Forecasters also point to how the world has evolved during the pandemic, underlining the need for dependable transportation and sourcing to restock depleted shelves of all kinds, not just retail. In some sectors, North American manufacturers have been hammered by erratic supply chains involving goods from China, produced with cheap labour. Mexico started muscling in on that territory long ago.
And given the fragile relations between the U.S. and China, which leaves all of North America exposed to the ripple effect of sanctions and trade wars, reliable sources of what’s called “near shore” (versus offshore) supplies are welcome.
Agriculture has a lot to gain. Mexico is a big wheat consumer, but a very limited producer. Wheat’s growth cycle requires long days and cool nights, which makes the Canadian prairies and Midwest U.S. ideal for the crop. Luis Cervera, CEO of the Mexican Cereal Grains Institute, says millers there are enthused about the railway’s potential to bring high-quality Canadian wheat to their country.
Fine Mexican restaurants have already developed a taste for quality Canadian beef. Coming the other way, Canada increasingly relies on a steady supply of Mexican fruit to get us through the winter. Who knows how trade in other commodities will benefit from more open trade?
Railway companies claim to be much more efficient at moving commodities than trucks. Some of the promoters of the CP-KCS deal say its potential to positively impact the environment is significant because it will take so many trucks off the road for long hauls.
And if U.S. regulators are at all hesitant about approving the deal, that’s an angle they’ll have to consider. The U.S. is setting high environmental standards that its trading partners will have to follow if they want to do business there. In doing so, the U.S. will also need to show it supports efforts by those partners to be more environmentally sensitive. This rail deal checks that box.
It also holds potential for more crude oil transportation from Western Canada to refineries in the U.S., a highly contentious issue that has seen pipeline projects squashed and Alberta cry mercy. So no wonder the Alberta premier has publicly stated his support for the project.
And even though regulatory approval seems likely, everyone’s sitting tight, waiting to exhale. CP failed at other mergers in 2014 and 2016 that would have extended its rail business in the U.S. But the world was different then. It seems like now’s the time for a new railroad trilogy.